Banks may set up holding cos; SPV to raise funds

The Finance Ministry today asked PSU banks to explore the possibility of setting up holding company and Special Purpose Vehicle (SPV) to raise funds for expansion as the government may not be able to provide more than Rs 8,000 crore additional capital support this fiscal.
Meanwhile, bad loans or non-performing assets situation of state-owned banks improved to 4.44 per cent for the three-month period ended March 2014 as against 5.07 per cent at the end of December 2013.
This was stated by Financial Services Secretary G S Sandhu after Finance Minister P Chidambaram took stock of annual financial performance of government banks here.

Sandhu said various options like ESOPs, SPV model and holding company model were discussed during the meeting by which banks could raise funds from market to meet their capital requirement.
However, no decision on any of the options was taken in want of clearances from regulators like SEBI and IRDA.
"We have been telling banks that they should come out with out-of-box options...Because they will also have the responsibility to raise funds from the markets," he said.

One option, he said, a bank could set up an SPV to which it will transfer its real estate assets. The bank then can pay rental or lease to the SPV to create an income stream for the SPV.

"Based on this income stream, the SPV will raise money from the market," he added.
Under the bank-wise holding company model suggestion, he said, the bank will transfer all its subsidiaries to the new company which in turn can tap market for funds.
"RBI has approved it (holding company model). We are waiting for Sebi's reply then we will go ahead," he said.
Another option, he said is perpetual bond route to raise capital.
"RBI has agreed. Irda has to agree. Irda has more less agreed, we are waiting for their final approval," he added.
When asked what additional amount government would be infusing apart from provision in the interim budget in banks, he said, "Rs 11,200 crore, that is the provision we have made, although there was higher requirement demand and the balance which can be Rs 6,000-8000 crore."

The interim budget has made provision of Rs 11,200 crore toward capital infusion and additional government support to banks would be reflected in the regular budget to be presented by the new government.
The government expects capital requirement of the state- owned banks at Rs 45,528 crore for 2014-15.
Recently Chidambaram said: "What we have provided is what we have budgeted now. This is an Interim Budget. In regular budget, you will get a full picture what government can provide as additional capital.